With the easy availability of more affordable and wider range of options as well as developers offering attractive payment plans, things are looking up on the real estate front in the UAE. Now is a good time as any to consider taking out a mortgage on a new home. For expats living in the UAE, however, the banks require buyers to make an upfront down payment of 25% of the property value in order to qualify for a mortgage. Read on for the top tips on how to systematically save money to fund the down payment.
Down payment on your new home requires building up some serious savings. Also, there is the matter of additional closing costs like the land department fee, real estate agency fee, valuation fee and so on, which further adds up to about 6% of the total value. Even though it might sound difficult, if you take an effective and organized approach, it is not impossible.
Budgeting is the first step to get you started on the saving process. It ensures that you balance your expenditure with your income and set aside enough money in the process. Having your expenditures documented can help keep a track on your finances and figure out where you can cut back. The idea is to save in an effective and organized manner. For this purpose, it is essential for you to be honest and realistic about your goals, timeframe and potential.
[Related: The 50/20/30 budgeting rule – Does it work?]
It is advisable to downsize before you upsize. Saving money on housing rent by moving into a smaller or more affordable accommodation, lowering your Credit Card limit to avoid impulsive buying, giving expensive overseas vacations a miss, etc. can go a long way in helping you save for the down payment.
Cutting down Debt
Paying off your Credit Card debts and other bank loans before considering buying a property is also an important step towards saving. Settling high-interest debts reduces your monthly expenses, which frees up more cash that you can put aside for down payment. In addition, excessive loans and high credit limits tend to bite into your DBR when applying for a mortgage.
Investing in National Bonds
National Bonds Corporation is an innovative shari’a compliant saving scheme licensed and regulated by the UAE Central Bank. It offers a credible and risk-free investment opportunity by investing money in the local economy. It offers good rates of return which are also proportional to the duration of investment, meaning the longer the duration of investment, the greater the profit rates. In addition to profit on bonds, there is also the opportunity to win large prizes every month which translate to great savings.
Dedicated Online Saving Accounts
Online saving accounts are interest bearing saving accounts offered by some banks in the UAE to help maximize your savings. They make your money management easier and more convenient by offering online access at all times. They further encourage savings by not providing ATM cards or chequebooks, making it harder to withdraw cash. Having a similar dedicated bank account for your down payment will make it easier to keep track of your savings.
Automated Savings Plan
Regular savings are more effective. Activating automated savings plan on your bank account makes your money move invisibly and without having to make any extra effort. This is also perfect for those who want to go down the ‘save first, spend later’ route.